What’s the secret to fixing the UK’s public finances?

Unexpected growth in the UK economy isn’t enough to detract from the gaping hole in the country’s public finances. Speculation is ramping up about what steps the chancellor of the exchequer, Rachel Reeves, might take to plug the gap come the budget in autumn – and there are no shortage of ideas. The trouble is, each comes with risks and unknowns. The Conversation asked a range of experts, including Professor Steve Schifferes, Honorary Research Fellow at City St George's, University of London' to weigh up the evidence to offer suggestions.

Keep freezing income tax bands – and hope voters don’t notice

Steve Schifferes, Honorary Research Fellow, City St George’s University

Rachel Reeves faces a challenging task in the budget this autumn. Based on her own fiscal rules, there is a large hole in the public finances that will need to be filled. And as she has ruled out major changes to these fiscal rules, while also facing pressure to increase spending from within the Labour party, it is clear that she will have to raise taxes.

So it is likely that, whatever else she does, continuing the freeze (which is due to expire in 2028) on the basic and higher rate of income tax for another two years is likely to top her agenda. The freeze on thresholds is already projected to have increased income tax receipts by £40 billion per year by 2028, and extending it to 2029-30 could increase government tax receipts by an additional £7-£8 billion a year. This would make a substantial contribution to bridging the fiscal shortfall.

For one thing, it is the continuation of an existing policy and will not take effect until the 2028/29 fiscal year, when the current freeze ends. This makes it harder for people to gauge its real effects on their income. Although it will attract criticism for breaking her income tax pledge, it would be politically easier to justify than direct changes in tax rates. And unlike wealth taxes, it is difficult to avoid.

To read the full, original article with further insights, please visit The Conversation.